Wednesday, April 01, 2009

Electricity review might deliver useful answers

I tend to be sceptical of reviews, but the report in the NZ Herald of the government's announcement of a Ministerial review into the electricity sector is likely to look at how this state dominated generation and retail sector needs to be unshackled to allow competition to operate more freely.

Gerry Brownlee has indicated one issue is duplication of sector governance, which basically means too much bureaucracy. Energy security is important as Labour interfered considerably to try to guarantee supply (at high cost), and pricing given the government is the key market player is worth observing. The question being whether Labour milked the SOEs for dividends compared to investment in capacity.

The panel appointed includes some useful heavyweights. Brent Layton and Lewis Evans are excellent infrastructure sector economists who understand markets, Stephen Franks should add a reasonably sound legal perspective, and David Russell while on the left, becomes the consumer representative. Toby Stevenson knows the electricity sector intimately, and Miriam Dean is a competition lawyer.

Not a unionist, token ethnic representative or gender balance in sight, a review made up of intelligent, talented people.

However, will it be allowed to recommend privatisation of the sector? There is little sign that it will support the crazy Green agenda of recreating a single state owned monolith electricity generator.

So I am cautiously optimistic that it will unshackle the sector, and support more private sector investment (after all minority private investment wouldn't be full privatisation would it?).

More importantly, will a similar heavyweight team review the telecommunications sector?


Anonymous said...

Sorry to disappoint you but ownership stuctures are not under review. So SOEs and privatisation are off the table.

It is purely going to be reviewing existing reviews to see what they say can be done and make a call on which is right. There won;t be time for original in-depth analysis.

The real issue is that people in the industry lie all the time and there is no-one willing to confront and constrain them because they are the biggest of cry babies.

- Transpower lies about security of supply and that it’s acting solely in the national interest
- Generators lie about constraints and their impact
- Retailers lie about price rises
- Politicians lie about just about everything when it suits them.
- The Electricity Commission lies about its independence
- Consumers lie about reliability of supply and their willingness to pay

What are needed a few home truths:

The first is that as long as demand increases and we need to build new stuff to meet demand, prices will continue to rise. There is no redefining technology that will lower the cost of production as in telecoms. So don’t trust anyone who says the little project they want you to pay for is going to lower prices. They are not. Every time a new power line is built, your bills will rise. Every time a new power station is built, your bills will rise. If someone says building more will lower prices, generally they are lying.

The second is, monopolies and cosy oligopolies are not to be trusted. So when they say security of supply is at risk and they need more money, instantly distrust them. These guys get paid for building big new things so their interests are best served by talking up the need for big new things. When they say the law is confusing they are lying. They employ dozens of people whose sole job is to manipulate the regulatory process. They know how it works very well.

Third, when power companies say they are finding it difficult to build and business confidence is being eroded, don’t believe them. They are usually looking for a handout of one form or another.

Fourth, if you employ policy makers expect them to find policies that need to be made or analysed, whether they are needed or not. So bureaucracy will tend to bloat. It’s healthy to review this. Also, don’t believe bureaucracies when they say their latest initiative will save consumers X dollars. What’s the bet the super city costs more than anyone expects?

Fifth, consumers want everything for free. They see no connection between price and cost of supply and service. Power will always be too expensive and unreliable no matter what the evidence.


libertyscott said...

Insider, I am NOT surprised that this is the scope.

Excellent points though, I fully agree.